The latest World Economic Outlook Update released by the International Monetary Fund (IMF) in July forecasts a deep divergence in the recovery paths of developed and emerging economies. While progress for advanced countries has been predicted to grow in 2021, in contrast, emerging economies are expected to experience a decreased expansion. The deviation is due to the level of vaccinations in different countries, states the IMF.
According to the IMF, the global economy is expected to rise by 6% in 2021 and 4.9% in 2022. Since the previous update, the overall growth forecast has remained unchanged but the prospects for emerging and developing economies have drastically diminished whereas revised forecasts for the developed world predict an increase of 0.5%. The most dramatic fall relates, particularly to emerging Asian countries.
The revision is mainly due to the pandemic developments and public support. The 0.5% improvement for 2022 stems from the progress made by developed countries in 2021, anticipating that advanced countries will further expand their policy support and will make continued progress in vaccination campaigns. For 2022, initially, progress was forecast to stand at 4.4% while the updated outlook now predicts 4.9% growth.
Fig.1. Growth projection
The IMF prediction suggests that the pandemic has decreased per capita incomes in developed countries by 2.8% a year relative to the pre-pandemic tendencies over 2020-2022. At the same time, according to the estimate, emerging and developing countries, except China, have experienced an annual per capita loss of 6.3% a year.
Fig.2. Latest World Economic Outlook Update Growth Projections
With regard to advanced countries, the significant progress made by the U.S. is expected to have derived from the impact of the policies introduced to boost infrastructure investment and strengthen social safety. Japan is anticipated to experience a rapid recovery in the second half of 2022 while France, Germany, Italy, and Spain are expected to have already recorded progress in 2021 with the expectation for this growth to continue in 2022.
The patterns in emerging and developing worlds, in contrast, are very different. With the shocking effects of the second wave of COVID-19, India’s recovery is expected to slow down and similar recovery dynamics are anticipated for Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. By cutting public investment and overall fiscal support, China is expected to record a downward expansion of 0.3%.
The positive improvements for Latin America and the Caribbean stem from the upward revisions in Brazil and Mexico. Estimates are also positive for the Middle East and Central Asia due to the robust economic activities in some countries. In Saudi Arabia, the prognosis for non-oil progress has been revised upwards but the total GDP estimate has been reduced compared to the previous prediction due to subdued oil production under the OPEC+ quota earlier in 2021. The 2021 prediction for sub-Saharan Africa is unaffected relative to the previous update while the worsening pandemic developments are anticipated to weigh on the region’s recovery.
Fig.3. Predictions by regions
In general, the recovery of economies, particularly in terms of the labor market, remains far from being complete even in those countries where output has returned partially or completely to pre-pandemic levels. In comparison to the second and third quarters of 2020, the unemployment rate has decreased but it still remains above the pre-pandemic rate. Furthermore, the patterns of employment recovery are extremely uneven with youth, low-skilled labor, and women across countries in emerging markets and developing economies suffering the most.
Fig.4. Employment rate
